The NSW government has declared Santos' planned 50-kilometre pipeline connecting Narrabri to the approved Hunter Gas Pipeline "essential to NSW for economic reasons".
Planning Minister Anthony Roberts declared the project critical state infrastructure on Friday, giving it high-priority status in the department.
Premier Dominic Perrottet said in a media statement that the pipeline was a crucial link needed to connect the Narrabri Gas Project into the east coast gas network.
"The Narrabri project will be vital to securing affordable and reliable gas for more than one million NSW households and thousands of businesses who rely on natural gas for heating, cooking and power generation," Mr Perrottet said.
"By getting NSW gas into our system we will provide greater reliability and downward pressure on natural gas and electricity prices.
"Once up and running, Narrabri will be the backbone of our state's gas needs, supporting our transition to renewable power sources."
Santos won approval for its controversial Narrabri coal seem gas field in 2020 but has been waiting on risk-management approvals from the NSW government.
The company bought the Hunter Gas Pipeline project in August from a group of backers including high-profile Hunter businessmen Hilton Grugeon and Garbis Simonian.
The approved route for the 820km HGP runs from near Roma in outback Queensland to Newcastle and the Hunter gas power plant under construction outside Kurri Kurri.
Santos said when it bought the HGP that the purchase cleared one of the last remaining hurdles to opening up its Narrabri coal seam gas field.
Mr Roberts said on Friday that the "lateral" connecting pipeline from Narrabri, if approved, would inject up to $90 million into the economy during construction and create up to 200 construction jobs.
"Together, this pipeline, with the initial stages of the Narrabri Gas Project and the Hunter Gas Pipeline, equate to more than $1.5 billion in spending and 1750 jobs during construction and 225 operational jobs," Mr Roberts said.
"The project would enable supply of about 70 petajoules of gas a year to the NSW market via the Hunter Gas Pipeline, which still needs to be constructed once the final route is selected and management plans and studies are done," he said.
Santos can now request assessment requirements to prepare an environmental impact statement on the Narrabri pipeline.
The Newcastle Herald reported in August last year that many farmers along the route of the HGP had reacted with alarm when Scott Morrison promised the federal government would underwrite the project.
HGP has approval for a 200-metre-wide corridor in which to lay the pipe two metres underground within a 30-metre easement on properties.
